20. Acquisitions

San Diego Trust Bank Acquisition

On June 25, 2013, the Company completed its acquisition of San Diego Trust Bank (“SDTB”) in exchange for consideration valued at $30.6 million which consisted of $16.2 million of cash and 1,198,255 shares of the Corporation’s common stock.

SDTB was a San Diego, California based state-chartered bank. The acquisition was an opportunity for the Company to acquire a banking network that complemented our existing banking franchise and expanded into a new market area. Additionally, the SDTB acquisition improved the Company’s deposit base by lowering our cost of deposits and providing an opportunity to accelerate future core deposit growth in the San Diego, California, market area.

Goodwill in the amount of $5.6 million was recognized in this acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of SDTB as of June 25, 2013 and the provisional fair value adjustments and amounts recorded by the Company in 2013 under the acquisition method of accounting:

	SDTB Book Value			Fair Value Adjustments			Fair Value
	(dollars in thousands)
ASSETS ACQUIRED
Cash and cash equivalents	$	30,252		$	—		$	30,252
Investment securities	124,960			(155		)	124,805
Loans, gross	42,945			(223		)	42,722
Allowance for loan losses	(1,013		)	1,013			—
Other real estate owned	752			—			752
Core deposit intangible	—			2,836			2,836
Other assets	9,856			—			9,856
Total assets acquired	$	207,752		$	3,471		$	211,223

LIABILITIES ASSUMED
Deposits	$	183,901		$	6		$	183,907
Deferred tax liability (asset)	(333		)	1,507			1,174
Other liabilities	1,823			(729		)	1,094
Total liabilities assumed	185,391			784			186,175
Excess of assets acquired over liabilities assumed	$	22,361		$	2,687		25,048
Consideration paid							30,622
Goodwill recognized							$	5,574

The Company accounted for these transactions under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the core deposit intangible, securities and deposits with the assistance of third-party valuations. The fair value of other real estate owned (“OREO”) was based on recent appraisals of the properties.

The estimated fair values are subject to refinement as additional information relative to the closing date fair values become available through the measurement period, which can extend for up to one year after the closing date of the transaction. While additional significant changes to the closing date fair values are not expected, any information relative to the changes in these fair values will be evaluated to determine if such changes are due to events and circumstances that existed as of the acquisition date. During the measurement period, any such changes will be recorded as part of the closing date fair value.

First Association Bank Acquisition

On March 15, 2013, the Company completed its acquisition of First Association Bank (“FAB”) in exchange for consideration valued as of the closing at $57.9 million which consisted of $43.0 million of cash and 1,279,217 shares of the Corporation’s common stock.

FAB was a Dallas, Texas, based bank which specialized in providing commercial banking services to home owner association (“HOA”) management companies throughout the United States. The FAB acquisition was an opportunity for the Company to acquire a highly efficient, consistently profitable and niche-focused business that complimented our banking franchise. Additionally, this acquisition improved the Company’s deposit base by lowering our cost of deposits and providing a platform to accelerate future core deposit growth from HOAs.

Goodwill in the amount of $11.9 million was recognized in this acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill recognized in this transaction is not deductible for income tax purposes.

The following table represents the assets acquired and liabilities assumed of FAB as of March 15, 2013, the provisional fair value adjustments and amounts recorded by the Company in 2013 under the acquisition method of accounting:

	FAB Book Value			Fair Value Adjustments		Fair Value
	(dollars in thousands)
ASSETS ACQUIRED
Cash and cash equivalents	$	167,663		$	—	$	167,663
Investment securities	219,913			2,478		222,391
Loans, gross	26,264			158		26,422
Allowance for loan losses	(224		)	224		—
Core deposit intangible	—			1,930		1,930
Other assets	5,823			—		5,823
Total assets acquired	$	419,439		$	4,790	$	424,229

LIABILITIES ASSUMED
Deposits	$	356,737		$	81	$	356,818
Borrowings	16,905			—		16,905
Deferred tax liability	—			3,918		3,918
Other Liabilities	536			—		536
Total liabilities assumed	374,178			3,999		378,177
Excess of assets acquired over liabilities assumed	$	45,261		$	791	46,052
Consideration paid						57,906
Goodwill recognized						$	11,854

There were no purchased credit impaired loans acquired from FAB or SDTB. For loans acquired from FAB and SDTB, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of the respective acquisition dates were as follows:

	Acquired Loans
	(dollars in thousands)
Contractual amounts due	$	79,358
Cash flows not expected to be collected	—

Expected cash flows	79,358
Interest component of expected cash flows	10,543

Fair value of acquired loans	$	68,815

In accordance with generally accepted accounting principles there was no carryover of the allowance for loan losses that had been previously recorded by FAB or SDTB.

The operating results of the Company for the twelve months ending December 31, 2013 include the operating results of FAB and SDTB since their respective acquisition dates. The following table presents the net interest and other income, net income and earnings per share as if the merger with FAB and SDTB were effective as of January 1, 2013 and 2012. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:

	Twelve months Ended December 31,
	2013		2012

Net interest and other income	$	72,021	$	71,606

Net income	9,852		18,713

Basic earnings per share	$	0.62	$	1.43

Diluted earnings per share	$	0.59	$	1.39

Palm Desert National Bank

Effective April 27, 2012, the Bank acquired certain assets and assumed certain liabilities of Palm Desert National Bank from the FDIC as receiver for Palm Desert National, pursuant to the terms of a purchase and assumption agreement entered into by the Bank and the FDIC on April 27, 2012. The Palm Desert National Acquisition included one branch of Palm Desert National that became a branch of the Bank upon consummation of the Palm Desert National Acquisition. The Bank did not enter into any loss sharing agreements with the FDIC in connection the Palm Desert national Acquisition. As a result of the Palm Desert National Acquisition, the Bank acquired and recorded at the acquisition date certain assets with a fair value of approximately $120.9 million, including:

· $63.8 million of loans;

· $39.5 million of cash and cash equivalents;

· $11.5 million of OREO;

· $1.5 million in investment securities, including Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank stock;

· $840,000 of a core deposit intangible; and

· $3.8 million of other types of assets.

Also as a result of the Palm Desert National Acquisition, the Bank assumed and recorded at acquisition date certain liabilities with a fair value of approximately $118.0 million, including:

· $50.1 million in deposit transaction accounts;

· $30.8 million in retail certificates of deposit;

· $34.1 million in whole sale certificates of deposits, which were purposefully run off during the second quarter of 2012;

· $2.4 million in deferred tax liability; and

· $578,000 of other liabilities.

The fair values of the assets acquired and liabilities assumed were determined based on the requirements of FASB ASC Topic 820: Fair Value Measurements and Disclosures. Final valuation and purchase price allocation adjustments are reflected in the table below:

	April 27, 2012
	(dollars in thousands)
Assets
Cash and cash equivalents	$	22,071
Securities available for sale	100
Federal Reserve Bank and Federal Home Loan Bank stock	1,390
Loans	63,772
Other real estate owned	11,533
Core deposit intangible	840
Accrued interest receivable and other assets	3,658
Total Assets Acquired	$	103,364
Liabilities
Deposits	$	115,582
Other	29
Total Liabilities Assumed	115,611
Excess of liabilities assumed over assets acquired	12,247
Cash received from FDIC	17,420
FDIC receivable	167
Recorded gain on acquisition	$	5,340

Canyon National Bank

Effective February 11, 2011, the Bank acquired certain assets and assumed certain liabilities of Canyon National Bank from the FDIC as receiver for Canyon National, pursuant to the terms of a purchase and assumption agreement entered into by the Bank and the FDIC on February 11, 2011. The Canyon National Acquisition included the three branches of Canyon National, all of which became branches of the Bank upon consummation of the Canyon National Acquisition. The Bank did not enter into any loss sharing agreements with the FDIC in connection with the Canyon National Acquisition. As a result of the Canyon National Acquisition, the Bank acquired and received certain assets with a fair value of approximately $208.9 million, including:

· $149.7 million of loans;

· $16.1 million of a FDIC receivable;

· $13.2 million of cash and cash equivalents;

· $12.8 million of investment securities;

· $12.0 million of OREO;

· $2.3 million of a core deposit intangibles;

· $1.5 million of other assets; and

· $1.3 million of FHLB and Federal Reserve Bank stock.

Also as a result of the Canyon National Acquisition, the Bank assumed and recorded at acquisition date certain liabilities with a fair value of approximately $206.6 million, including:

· $204.7 million of deposits;

· $1.9 million in deferred tax liability; and

· 39,000 of other liabilities.

	February 11, 2011
	(dollars in thousands)
Assets
Cash and cash equivalents	$	13,167
Securities available for sale	12,753
Federal Reserve Bank and Federal Home Loan Bank stock	1,323
Loans	149,740
Other real estate owned	11,953
Core deposit intangible	2,270
Accrued interest receivable and other assets	1,640
Total Assets Acquired	$	192,846
Liabilities
Deposits	$	204,678
Other	39
Total Liabilities Assumed	204,717
Excess of liabilities assumed over assets acquired	11,871
Cash received from FDIC	13,222
FDIC receivable	2,838
Recorded gain on acquisition	$	4,189